Jackson & Anor v Royal Bank Of Scotland [2000] EWCA Civ 203

EWCA-Civ
Jackson & Anor v Royal Bank Of Scotland
[2000] EWCA Civ 203 · 2000-06-28
[1]This appeal and cross-appeal arise out of the judgment of HH Judge Kershaw QC sitting as a judge of the High Court in Manchester. The judge held the defendant ("the Bank") liable to the claimants who were partners in a business partnership under the name of "Samson Lancastrian" ("Samson") for breach of contract and breach of confidence as a result of the bank, by a mistake, sending documents to one of Samson's customers ("Economy Bag"), to whom Samson had sold a consignment of imported dog chews from a Far Eastern supplier, as a result of which Economy Bag ceased to trade with Samson and entered into a direct relationship with Samson's supplier, thus cutting out Samson and depriving them of their intermediate profit which had been a substantial source of profit to Samson in their previous relationship with Economy Bag.[2]Three main issues arise. The first is that raised by paragraph 1 of the Bank's Respondent's Notice and concerns the characterisation of the legal relationship between Samson and Economy Bag. Samson contended, and the judge found, that the relationship was that of seller (Samson) and buyer (Economy Bag) and damages were awarded on that basis. The Bank contended and contends on this appeal that the relationship was that of principal (Economy Bag) and agent (Samson), it having been common ground at the trial that, if the relationship was indeed one of principal and agent, the claim would fail in its entirety because the claim for loss of profit based on the mark-up to which I have referred was a secret profit undisclosed to Economy Bag, in respect of which the court should deny a remedy on policy grounds. The second issue, raised both by the Notice of Appeal and by the Respondent's Notice, is whether, in making his award of damages, the judge was correct in his findings on causation remoteness and quantum. The Bank contends that the damages awarded were too remote, not having been reasonably foreseeable to the bank as a result of its breach of duty. Samson contends that the award was inadequate on the evidence placed before the judge. The third issue relates to the rate of interest ordered by the judge upon his award of damages, namely 6% over base rate. Following oral argument on 6 th and 7 th March 2000, when judgment was reserved, Samson requested the court to reconvene in order to hear further argument on the third issue. On objection by the Bank, that request was refused. Instead, the court directed that the issue should be addressed in further written submissions by counsel, which were not completed until 7 th April 2000. THE FACTS[3]The plaintiffs were partners in a business which imported goods from countries in the Far East, including Thailand, and sold them to customers in the United Kingdom. In 1990 they were introduced to Mr Taylor, who traded in partnership with a Mr Holt as Economy Bag. Economy Bag sold a variety of goods, in particular dog chews which, at the time of their introduction to Economy Bag, they were buying loose in bulk and packing themselves for wholesale and resale supply. They wished to eliminate their packing operation and to find a source of supply of dog chews, ready-packed in packaging which bore their trade name.[4]The plaintiffs went to Thailand and found a potential supplier, obtaining samples and prices. Upon return, they showed samples and quoted prices on a CIF Manchester basis which were acceptable to Mr Taylor. Mr Jackson explained and Mr Taylor agreed that the business would have to be done on the basis that Economy Bag would pay under transferable letters of credit so that Samson would have security in a situation where, if Economy Bag defaulted, Samson would be left with dog chews in packets labelled specifically for Economy Bag with consequent difficulties of disposition in the market.[5]By coincidence, the Bank was banker to both Samson and Economy Bag. Economy Bag placed an order with Samson and instructed the Bank to issue to Samson a transferable letter of credit subject to UCP 400, issued in favour of Samson in the sum of some $48,000. Having placed the order in Thailand, Samson were let down by their suppliers and had to revisit Thailand to find another supplier. They found Pet Products Limited ("Pet Products"), of which the managing director was a Mr Veerochai. Pet Products fulfilled the order consigning the container to Manchester. After the order was placed, but before the goods arrived in England, Economy Bag asked, and Samson agreed, that because of Economy Bag's inexperience in such matters, Samson would deal with the import formalities and arrange carriage from Manchester to the premises of Economy Bag near Preston, for which it would make an inclusive handling charge of 5% of the CIF price. The transaction was completed successfully on this basis and thereafter a substantial number of similar transactions followed.[6]At all stages, so far as Samson was concerned, they bought as principal from Pet Products and re-sold as principal to Economy Bag, marking up the price which they paid to Pet Products by a percentage which varied from time to time, and using the Bank as their bankers for the purposes of the transaction. They did not disclose their percentage mark-up to Economy Bag, keeping the price at which they purchased to themselves and, from Samson's point of view, it was a virtue of the transferable letter of credit arrangements that they concealed the mark-up from Economy Bag, because the price paid under Economy Bag's successive letters of credit was paid, (inter alia), against Samson's invoice and not Pet Products'. The letters of credit provided, so far as material, for payment on production of a commercial invoice, an insurance policy/certificate for invoice amount plus 10%, and a packing list. Partial shipments were allowed. The insurance policy in each case showed Pet Products as the assured, but the amount of the insurance shown was the amount of Samson's commercial invoice plus 10%. The packing list was on Pet Products stationery; however, it did not show either the unit price or the total invoice price from Pet Products to Samson. Thus, while the identity of Pet Products as original supplier was available to Economy Bag upon perusal of the documents submitted under any of its letters of credit, neither the unit price, nor total price charged by Pet Products to Samson was apparent and Economy Bag were unaware of any mark-up made by Samson.[7]Once the arrangements were in place Economy Bag decided to leave the administration of its own documentation to Samson. The Bank was instructed by Economy Bag on 26th March 1991 to instruct its International Division to forward all relevant documents to Samson upon application and as soon as they were received from Thailand. The Bank followed those instructions and Economy Bag never asked Samson for any documents sent by the Bank to Samson in pursuance of that instruction. The timing of the deliveries was such that only in relation to the first transaction were the documents sent to Economy Bag. On 22 nd May 1991 Economy Bag wrote to the Bank. "To confirm that Barry Davies of Samson Lancastrian is "de facto" agent to ourselves as regards import procedures and documentation. I therefore authorise him to speak directly to both Deane Branch and International Division on our behalf, on all matters concerning imports, etc." Further, on 22 nd October 1991 Economy Bag signed a banking document which read:
"Payments for documents with discrepancies can now be authorised by Samson Lancastrian direct .... and need not be referred to Economy Bag"
[8]Thereafter, Economy Bag did business on an increasing scale with Samson, supplying dog chews from Pet Products whenever requested by Economy Bag until March 1993. Thirty-three contracts over a trading period of 26 months yielded a profit to Economy Bag on varying mark-ups of $110,371 excluding the 5% commission which was itself largely profit. The relationship ended when, upon completion of a purchase of dog chews pursuant to an order from Economy Bag made on 7 th January 1993, the Bank, under cover of a letter dated 15 th March 1993, despatched to Economy Bag rather than to Samson, a completion statement containing Pet Products invoice to Samson, thereby revealing the substantial profit being made by Samson (which on that transaction was a 19% mark-up, plus 5% "commission"), which was as much, if not more, than Economy Bag were netting as distributors. Mr Taylor was angry at this. His answer in evidence which

the judge accepted as reflecting the position was as follows:

"I think over the period we dealt with Samson we'd sort of lost sight of the deal we'd come into. I suppose if you were to take a step back from it, we knew he was making profit but I think confronted with the amount of that profit it was hurtful to say the least."
[9]He thereafter terminated the business relationship. Economy Bag then proceeded to do its dog chew business direct with Pet Products. Discovery in the action revealed that in the year ending March 1994 Economy Bag purchased fifteen shipments worth US$257,944; in March 1994/95 twenty-eight shipments worth US$468,296; in March 1995/96 twenty-three shipments worth US$462,467 and in March 1996/97 twenty-five shipments worth US$645,429. At trial, Mr Taylor indicated in evidence that its business with Pet Products had continued on that scale and that Economy Bag also did business with other Far Eastern suppliers which, had the relationship with Samson continued, would have been done through Samson. THE JUDGMENT BELOW[10]The judge found that the Bank was in breach of an express or implied contractual obligation of confidence as Samson's bankers not to disclose to Economy Bag documents relating to the purchase of the goods by Samson from Pet Products, including in particular the invoice raised by Pet Products addressed to the defendant. There is no appeal against that aspect of the judgment. That finding was unimpeachable on the basis of the agreed evidence of the banking experts on each side to the effect that the majority of transferable letters of credit are used for the benefit of middlemen who wish to conceal from their customer the identity of their suppliers or the amount of their mark-up and that banking practice envisages that confidentiality be preserved for the protection of the middleman's interests in that respect.[11]The judge rejected the submission on behalf of the Bankthat the relationship between Economy Bag and the plaintiffs was in reality that of principal and agent, as opposed to seller and buyer. That submission was based upon the fact that, after the placing of the first order, which was plainly one of purchase, by Samson from Pet Products and resale onto Economy Bag, Samson took a 5% "commission", so described by them in their invoices to Economy Bag, which itself represented profit to them, given that clearance and haulage charges, VAT and import levy were all invoiced separately. Further, Samson did nothing to make clear that they were charging a greater mark-up and, on occasions, wrote letters which appeared to describe their own prices as those of Pet Products. It was submitted for the Bank that these facts demonstrated(a) that Mr Taylor was in fact ignorant that any mark-up was being charged at all and thus that anything but "commission" (only consistent with agency) was being paid;(b) the reason why Mr Taylor was so angry on discovering the true situation.

The judge stated his conclusion on the issue of agency as follows:

"I accept [Samson's] submission that what matters is not what the parties call themselves but the substance of the relationship. Not surprisingly, each side was able to find passages in the evidence and the documents which support its contention. The crucial witness was Mr Taylor .... . He did not find it easy to give evidence. Both sides were able to find support from parts of his evidence. It was when he gave evidence that I was particularly grateful to the parties for their agreement that there should be a Palantype record of the evidence, because I was relieved of the need to take a full note and better able to watch him. I have reached the conclusion that he knew that the plaintiff was making a profit in addition to the 5%, but not how much, but what astonished and aggrieved him was the discovery that the plaintiff, with no risk and no capital outlay, was making a significantly larger profit than Economy Bag, that he over-reacted to the discovery, and that he now realises and regrets that he did so."
The judge then quoted the answer of Mr Taylor already set out at paragraph 9 above and went on "I appreciate Mr Taylor's evidence was not consistent. I appreciate that in the light of his inconsistency when questioned by counsel I put the point to him myself ... I appreciate that faced with such confusion I do not have to prefer one version to another, but could conclude that Mr Taylor's evidence is unreliable and cannot form a basis for any finding at all. However, with all that in mind, I have reached the conclusion that the answer which I have quoted reflects the true state of mind of Mr Taylor, and is consistent only with the plaintiff being a middle-man and, not an agent ... I have found as a fact that it was only after the first contract between the plaintiff and Economy Bag .. had been formed that a further agreement was made between them in relation to the import formalities and onward carriage from the Manchester Container Port. The sequence is not consistent with agency. If no such separate agreement had been made there would have been no agreed basis for any remuneration of the plaintiff at all. I do not think that either the plaintiffs or Economy Bag would have made an agreement for the plaintiffs to act as Economy Bag's agent without making express provision of the amount of the plaintiffs' remuneration. The favours which the plaintiffs did by placing a few orders with Pet Products without requiring a letter of credit from Economy Bag are also more consistent with the plaintiffs being middle-men than agents."[13]So far as damage was concerned, the judge first dealt with and rejected the argument for the Bank that the damage claimed was too remote. He then referred to the rule in Hadley -v- Baxendale and, in particular, the decision of the Court of Appeal in Kpohraror -v- Woolwich Building Society [1996] All ER 119. He stated :
"I hold that loss of the type which the plaintiff claims arises in the normal course of things from either of the types of breach of contract alleged by the plaintiffs i.e. breach of an express (or, alternatively, implied) term of the contract to transfer the letter of credit and breach of the banker/customer contract. I hold that there was nothing to take that consequence beyond what would arise in the normal course of things from breach of the transferable letter of credit contract or the general banker/customer contract between the parties."
He then, approached the matter on the basis that, having received evidence of the level of Economy Bag's trade with Pet Products in the years following March 1993 (see paragraph 9 above), he should assess the damages on the basis of Samson's loss of the chance of profit on those sales, quoting in particular Stuart-Smith LJ in Allied Maples Group Limited -v- Simmons & Simmons [1995] 1 WLR 1602 at 1614D:
"....the plaintiff must prove as a matter of causation that he had a real substantial chance as opposed to a speculative one. If he succeeds in doing so, the evaluation of the chance is part of the assessment of the quantum of damage, the range lying somewhere between something that just qualifies as real or substantial on the one hand and near certainty on the other."

The judge went on:

"In this action the plaintiff claims for damages for loss of opportunity - the opportunity to continue to make profits by trading with Economy Bag. Mr Keith rightly accepted that there was a significant chance of the business relationship continuing but for the defendant's mistake. The plaintiffs had succeeded in proving damage. The difficulty lies in the assessment of the damages for the loss of profit in what was potentially a series of separate events. At the best from the plaintiff's point of view Economy Bag might have continued for many years to do a large volume of trade at a high mark-up, but there were many uncertainties, of which some presented more risk than others to that opportunity."
[14]The judge then elaborated upon the uncertainties, starting with the likelihood that Samson and Economy Bag would have continued to trade for a substantial number of years, expressing himself so satisfied. He then referred to the possibility that, although both were still trading, Economy Bag might not have continued to place orders with the plaintiffs, observing that by 1993 Economy Bag was under the pressure of increasing competition at having to keep its prices down in order to maintain or increase sales. It thus had a motive, in and after 1993, to cut out Samson altogether or to continue to buy but to undertake the import formalities themselves. He observed that, upon discovery of the true situation, Economy Bag was quickly able to deal directly with Pet Products, by now having the commercial self-assurance to set about doing so. He also observed that, while Mr Taylor had recognised the value of a long-term relationship with his supplier, shortly before the Bank's mistake came to light, Samson had started to sell pet food to M6 Cash & Carry, which might have affected the trading relationship with Samson if Economy Bag had discovered that they were selling goods to other buyers in the area. Samson were also themselves planning to open a retail outlet in Wigan which might have caused Economy Bag to perceive that Samson was competing in the retail business, thus reducing Economy Bag's loyalty to Samson.[15]The judge set out the figures for the profit which Samson projected (excluding the 5% commission charge) on the basis of the figures shown at paragraph 9 above. These were as follows (the average percentage mark-up appearing in brackets): 1993/94 $38,831 (12.9%); 1994/95 $73,839 (15.8%); 1995/96 $82.429 (17.8%); 1996/97 $135,227 (21%). He then set out further figures projected from March 1997 through to 2007. The judge made a number of comments about the overall trends in the figures and the likelihood of their being maintained and then observed:
"My jury function seems to me to require that I should assess damages on the basis not only of many possibilities which cannot be individually evaluated but also on a basis that some of the possibilities might, if they become realities, themselves increase the likelihood of others. On the other hand once I conclude, as I do, that there was a significant chance that the plaintiff's business relationship with Economy Bag would have continued for some time, there must be an award of damages .... . Because of the hazards which I have mentioned the likelihood that the business relationship would have come to an end increased as time passed. While the business relationship continued the plaintiff's profit might have increased through increased turnover but might have reduced, as a percentage and even in money terms, because Economy Bag acquired the motive and the means to squeeze the plaintiff's profit margins. I must therefore attribute an appropriate sum by way of damages for each year in which the plaintiffs have shown that damages should be awarded."
He then went on to identify the years in respect of which he made his award as follows:
"The years are 1 st April to 31 st March, which should be sufficient to enable the parties to agree a calculation of interest. 1993-1994 $27,000.00 1994-1995 $$43,000.00 1995-1996 $29,000.00 1996-1997 $26,500.00 $124, 500.00"
[16]It is thus apparent that the judge having started on the basis of the actual business done and anticipated by Economy Bag since the breach, treated Samson as having proved a real or substantial chance, as opposed to a merely speculative chance, of a further four years' repeat business with Economy Bag, reducing Samson's projected profit figures according to some progressive formula, the details of which were not divulged by the judge and the logic of which is not apparent. On a calculation effected by Miss Andrews, who now appears for Samson, it seems that (taking the judge's loss of profit figures set out at the beginning of paragraph 15 above, adding Samson's 5% commission fee and deducting the flat rate for overheads) the judge awarded the following percentages of Samson's projected loss of profit based on Economy Bag's purchases made directly from Pet Products: 1993/94-57%; 1994/95-46%; 1995/96-29%; 1996/97-16%. The implication of the judgment (borne out by that calculation) is that thereafter Samson's chance of repeat business became so speculative as not to merit compensation. THE QUESTION OF AGENCY[17]In arguing that the judge was wrong to find that the relationship between Samson and Economy Bag was that of seller and buyer rather than principal and agent, Mr Hapgood has drawn our attention to a number of points of detail on the evidence in order to demonstrate error on the part of the judge. His difficulty has essentially been two-fold. First, he was obliged to accept the finding of the judge that the original contract was one of buyer and seller and that the 5% handling charge had been agreed as consideration for Samson dealing with the import formalities and the carriage arrangements. In the light of that, the only way in which he could put his case for agency was to say that in some way, and without discussion, the original relationship of buyer and seller should be regarded as having evolved into agency thereafter, simply in the light of Samson's subsequent reference to the 5% figure as "commission". Second, he has been unable to demonstrate any misunderstanding on the part of the judge of the evidence which was before him.[18]Put as its highest, Mr Hapgood's submission could only be that the judge's findings on this issue were against the weight of the evidence. Yet, Mr Taylor's evidence was that he regarded Samson, not Pet Products, as Economy Bag's supplier and, in giving the evidence quoted at paragraph 8 above, Mr Taylor acknowledged that he knew, or must have known, that Samson were making a mark-up; he simply did not appreciate how large it was. Finally, although Mr Hapgood rightly submitted that the fact that the parties used transferable letters of credit did not preclude the existence of a relationship of agency (because such letters of credit may be used by applicants and first beneficiaries who stand in a relationship of principal and purchasing agent), it was the agreed evidence of the expert witnesses that the majority of transferable letters of credit are in practice used for the benefit of middle-men who wish to conceal the identity of their supplier or the amount of their mark-up. I can see no justifiable basis for interfering with the findings of the trial judge upon the issue raised by the Respondent's Notice. DAMAGES[19]Both sides appeal against the judge's assessment of damages. Miss Andrews for Samson submits that a far higher figure should have been awarded. On the basis that the judge rightly found on the evidence that there was a significant chance of the business relationship between Samson and Economy Bag continuing for some time but for the Bank's mistake, she makes the following criticisms of the judge's approach. First, she says there is no indication to show how the judge reached the figures at the end of his judgment, there being no consistent pattern in the discounts applied to reach the annual figures for loss of profit, nor any easily discernible relationship between them. Second, she submits that the assessment is remarkably low. She complains that the judge awarded no more than one third of the net profit figure for the four years in question. She submits that, the judge being satisfied that Samson had established a real or substantial chance of obtaining Economy Bag's future business, that finding should lead to at least a fifty per cent figure for the years to which it applies. She further submits that a proper approach would be one similar to the assessment of a chance in personal injury cases, namely to evaluate the potential future benefit and then apply a discount to reflect the uncertainties of achieving it, as well as any discount to reflect the value of receiving an accelerated capital payment in respect of any period after trial. Finally, she argues that, in the light of the evidence of Mr Davies that he intended to retire at the age of sixty-five in 2010 unless he made enough money to retire earlier, plus the observation of Mr Taylor that, but for the Bank's mistake, Samson would have gone on enjoying Economy Bag's business, the judge should have based the loss of profits claimed on a much longer period than the four years in fact taken.[20]In connection with the discount applied to reach that short period, Miss Andrews made a number of specific points. First, she complained that the reference to Economy Bag acquiring the motive to squeeze Samson's profit margins by taking over the import and carriage aspects themselves was never even put to Mr Taylor or Mr Davies and was contrary to Mr Taylor's evidence that he was happy with Samson's service and charges and, but for the Bank's error, would have continued giving them orders. Further, in referring to Economy Bag's perception that Samson's recent plans in relation to retail sales might have caused Economy Bag to reconsider their loyalty, the judge appears to have misunderstood the state of the evidence before him. Mr Davies had given unchallenged evidence that the product sold to the public by Samson at the Wigan retail outlet was totally different from any product sold by Economy Bag and, in any event, Mr Taylor knew about the plans and did not object to them. Second, the judge placed importance on the answer to a question put to Mr Taylor in cross-examination as to whether Samson had sold a quantity of pet foods to M6 Cash & Carry. Mr Taylor said he did not remember, but he would accept what was put to him. The matter was not taken further at that stage. Had it been so, the evidence would have shown that the M6 Cash & Carry was over one hundred miles away from Economy Bag's area of activity and in any event the products were not competing. In this respect Miss Andrews applied to put in additional evidence by way of witness statements from Mr Taylor and Mr Jackson (Mr Davies' partner in Samson) to correct the position, on the grounds that there had been no opportunity at the trial below, given that the judge's misunderstanding was not appreciated until he gave his judgment. We indicated in the course of the hearing that we would rule on that application when giving judgment. Since the points made seem to me good, and since it does seem to me that the judge misunderstood the position confirmed by the additional evidence, I consider that such evidence should be admitted.[21]Miss Andrews submitted that a proper approach to the assessment, based on the particular evidence given, would have been to take the period of ten years from the date of breach, basing calculation of the loss of profits on the actual trading figures for 1993-1997 and projecting the next six years (in respect of which she was prepared to accept a nil rate of growth), and then to discount the resulting total profits by a percentage to reflect various legitimate imponderables, including the chance of an earlier severance in the trading relationship and (where applicable) the accelerated receipt of money. On the evidence before the court, she submitted that the discount should not have been as much as, let alone more than, 50%. A fair discount would have been no more than 25%, which would produce a figure for damages of around US$1,000,000. Alternatively, if, as the judge appeared to consider was the case, the relationship would have lasted only four years, the damages should have been assessed at some US$400,000, being a conservative (undiscounted) estimated net profit figure for those four years.[22]The submission of Mr Hapgood upon the cross-appeal was an attack upon the principle, rather than the detailed figures, of the judge's assessment. First, he submitted that, upon the facts of the case, the damage was too remote, in the sense that, on the information in the possession of the Bank, it was not within the Bank's actual or reasonable contemplation that disclosure of the profit being made by Samson would be likely to result in the termination of the trading relationship between the appellant and Economy Bag. The documents showed that Pet Products knew the identity of Economy Bag, who had instructed the bank to send all documents submitted under the credits to Samson for checking, describing Samson as their "'de facto' agent as regards import procedures and documentation" and giving Samson authority to waive discrepancies in the documents. Whether or not the relationship between Samson and Economy Bag was in fact one of agency, the Bank was entitled to think that it was characterised by mutual trust and confidence and thus there was no reason for the Bank to suppose that breach of its duty of confidence to Samson would result in any damage at all. Mr Hapgood submitted that the real reason for the loss of business following the Bank's error was Mr Taylor's feeling of anger and betrayal when he learned of the high level of Samson's mark-up and that such a reaction was on any view outside the reasonable contemplation of the Bank (c.f. Kpohraror -v- Woolwich at 126g-127d).[23]For much the same reasons Mr Hapgood submitted that the Bank's breach of duty was not the effective cause of any loss, that cause being the inherently unstable nature of the relationship between Samson and Economy Bag, and of Samson's concealment of its profit level. He submitted that the kind of loss which Samson was in principle entitled to recover was any loss suffered in the actual transaction covered by the credit, as to which it had suffered none. Finally, Mr Hapgood submitted that, if any award were to be made, it should be an award simply of general damages for injury to Samson's business for reasons analogous to those where a bank fails to honour a trader's cheque or draft, thereby causing loss to his business reputation, in respect of which damages may be awarded without proof of actual damage (see Wilson -v- United Counties Bank Limited [1920] AC 102 per Lord Birkenhead LC at 112), which head of claim was extended in Kpohraror -v- Woolwich to a banker's customers generally (cp. 124a-125f per Evans LJ).[24]In considering the appropriate measure of damages to be awarded in this case, the court has been faced with a position in which the logic behind the arguments of both sides, if ruthlessly applied, would lead to extreme results. On the one hand, the arguments of Miss Andrews, based on the loss of the chance of earning profits over the lengthy period of years for which she has argued would have the following effects. First, it would lead to a figure for damages which appears to be out of all proportion to the nature of the Bank's mistake. Second, the application of such an approach in other cases of repeat orders allegedly lost following breach by a bank of its obligations in respect of commercial credits would give rise to the likelihood of "open ended" claims in a field, namely the financing of sale of goods, in which generally a restrictive approach is adopted in respect of claims for consequential loss. On the other hand, if Mr Hapgood's principal argument is accepted, it would lead to a situation in which a bank, despite its breach of an obligation which is by the common acknowledgement of experts, designed to protect its customer against the risk of precisely that which is proved to have occurred in this case (i.e. loss of repeat business), would be obliged to pay no more than nominal damages in cases of this kind, thus giving rise to the undesirable phenomenon of a wrong without effective remedy.[25]I would reject Mr Hapgood's arguments in that respect. Subject to questions of proof and the method of quantification, I consider that, in cases of this kind, a claim in respect of loss of chance or opportunity of repeat business should in principle be available if the requirement of the rule in Hadley -v- Baxendale , namely that such loss was "reasonably foreseeable as liable to result from the breach" is satisfied: see Victoria Laundry (Windsor) Ltd -v- Newman Industries Limited [1949] 2 KB 528 per Asquith LJ at 539, as qualified in The Heron II [1969] 1 AC 350 so as to distinguish the rule in contract from the rule of `reasonable foreseeability' applied in tort cases. In the latter decision, the test of foreseeability in contract was stated to be that reflected in terms such as "not unlikely to occur" (per Lord Reid at 388) and a "serious possibility" or "a real danger" (per Lord Pearce at 415 and per Lord Upjohn at 425). I would leave open, without deciding, the question whether the judge was correct, bearing in mind the agreed rationale of the duty of confidence in commercial credit cases (see paragraph 10 above), that proved loss of repeat orders is ipso facto loss of a type which, without more, justifies an award of general damages under the first limb of the rule in Hadley -v- Baxendale (see paragraph 13 above). I do not think it necessary so to decide because, in this case, the Bank was not dealing with a `one off' transaction, but was apprised of a course of dealing between the parties for two years prior to the breach, from which it knew that Samson and Economy Bag enjoyed a continuing and increasing trading relationship in a commodity supplied to the apparent satisfaction of both parties, and it had no reason to think that such relationship was about to end.[26]That said, however, the question of the appropriate method of quantification and, in particular, for how long it was or should have been in the reasonable contemplation of the parties that the trading relationship would continue is a different matter.[27]Before turning to those questions, I should say that I reject Mr Hapgood's argument (see paragraph 22 above) that the Bank had no reason to suppose that its breach of confidence would result in any damage at all, or that Mr Taylor's reaction was such as to put the termination of the trading relationship out of the reasonable contemplation of the Bank. The very nature of the obligation and the admitted duty of confidence in such cases arises from the acknowledged need to protect the Bank's customer from disclosure of his level of profit and the danger of any consequent decision by his purchaser to go direct to the customer's own supplier. Whether that decision was in fact taken for reasons of anger or from less complicated commercial motives, does not seem to me to be relevant to the broad question of whether such loss of business (in the form of repeat orders) was in the reasonable contemplation of the parties as a result of the Bank's breach. For the same reason, I would reject Mr Hapgood's argument that the effective cause of the loss of any repeat business was the peculiar nature of the relationship between Samson and Economy Bag prior to the Bank's breach. The fact that Mr Taylor felt angry and betrayed because of the revelation as to the high level of Samson's mark-up was not a reason acting independently of the breach. It was a state of affairs immediately precipitated by it and was in no sense an intervening or concurrent cause which ousted or overwhelmed the original breach as the effective cause of Mr Taylor's decision to eliminate the mark-up, once revealed.[28]I now turn to the judge's method of quantification. It does not seem to me to follow, as the judge appears to have held, that simply because there was a potential liability for loss of repeat orders, that liability was open-ended. The period over which the damages fell to be assessed on the basis of the lost likelihood or opportunity of repeat business was that period which would have been in the reasonable contemplation of the parties on the basis of their shared knowledge at the time of contract. Yet the judge assessed the period not on that basis, but on the basis of what emerged ex post facto at trial as the likely period over which Economy Bag would in fact have continued to trade with Samson.[29]The rule in Hadley -v- Baxendale is necessarily stated in general terms, by reference to categories of loss. However, it is a rule as to remoteness, applied as a method of limiting damages for breach of contract and operating as the yardstick by which to measure the cut-off point for recovery in any given case. Thus, when a defendant has no knowledge of special circumstances, he will be liable under the first limb of the rule for loss arising `in the ordinary course of things' (of which knowledge is imputed to every defendant), and no more. Where the claimant (upon whom the burden lies) asserts knowledge of special circumstances on the part of the defendant leading to additional loss, the defendant will still only be liable for so much of the loss as he should have anticipated on the facts known to him, but not for damage arising from circumstances of which he was unaware. In many cases however, there is no clearly defined line between the limbs of the rule, the defendant's liability under the second limb increasing over that to which he is subject under the first limb according to his degree of actual knowledge. As observed by Evans LJ in Kpohraror -v- Woolwich at 127j-128b:
".. the starting point for any application of Hadley -v Baxendale is the extent of the shared knowledge of both parties when the contract was made .... . When that is established, it may often be the case that the first and the second parts of the rule overlap, or at least that it is unnecessary to draw a clear line of demarcation between them. This seems to me to be consistent with the commonsense approach suggested by Scarman LJ in H. Parsons (Livestock) Limited -v- Uttley Ingham & Co. Limited [1978] QB 791 at 813, and to be applicable here."
Thus, in that case, the bank was held liable for injury to the customer's business reputation because it knew that he was a trader, but not for further business opportunities alleged to have been lost by reason of circumstances of which the bank was unaware on the basis of the limited facts known to it.[30]In this case, the court is dealing with a case which is superficially not dissimilar from Kpohraror -v- Woolwich, in the sense that the case for Samson is one for loss assessed on the basis that the claimant would have obtained, or had a substantial chance of obtaining, repeat business in the form of specific transactions over a future period of time of which the Bank had no actual knowledge. Despite his remarks above quoted, Evans LJ did in fact consider the claimant's claim under each limb of the rule in Hadley -v- Baxendale . He made clear (at 126j-127b) that it was not a case where the defendant bank was said to have had knowledge of any `special circumstances' so that the second limb applied, and, so far as the first limb was concerned he held that, on the bank's limited knowledge of the description which the claimant applied to himself and the purposes for which he intended to use his account, it could not be said to be a `not unlikely' consequence of the defendant's breach that any business loss would occur. The only damages payable therefore were payable in respect of the claim for general damages for injury to the claimant's credit and reputation caused by the bank's wrongful dishonour of his cheque, a category of case in which it has long been established that there is an irrebuttable presumption of injury in respect of which an award of substantial (as opposed to nominal) damages may be given without proof of special (i.e. actual) damage: see Wilson -v- United Counties Bank Limited [1920] AC 102 per Lord Birkenhead at 112 and Kpohraror -v- Woolwich at 123b-124c. In such a case the award of general damages is made on the basis that there can be no accurate assessment of the pecuniary loss (if any) suffered and, as with awards in tort for injury to reputation in defamation or for pain and suffering in cases of personal injury, there is no measure by which they can be assessed, except the opinion and judgement of a reasonable man.[31]In this case, however, as presented at trial, in respect of the years 1993-1997 the claim was one for loss of business profits made up of specific transactions where, at the time of the defendant's breach, none of the transactions had yet been concluded and the claimant's opportunity for profit depended on the chance or contingency that a third party (Economy Bag) would act so as to enable the claimant to make that profit. It was no doubt on that basis that the judge accepted the submission of Miss Heilbron QC, who appeared for Samson below, that the claim for loss of profits (which by the time of trial was based on transactions which were identifiable and identified in the form of invoices obtained from Economy Bag disclosed by Samson) should be dealt with on the loss of chance basis elucidated in Allied Maples -v- Simmons & Simmons at 1611B-1614D. That principle however, properly regarded, is a principle or method of quantification , and not a rule as to remoteness , of damage. It is thus subject to, and may be constrained by, the rules as to remoteness laid down in Hadley -v- Baxendale , so that, whatever the judge's view of the percentage chance that, but for the Bank's breach, Samson would in fact have been Economy Bag's supplier in the respect of the transactions in the following years, the cut-off point for the Bank's liability was the end of such period as was within the reasonable contemplation of the Bank at the time of breach.[32]As to that, the Bank's knowledge of the background and details of Samson's trading relationship was limited to the period of time and the individual transactions conducted prior to breach. Apart from those bare facts, it had no further information and thus no reason to suppose that Economy Bag was motivated by other than ordinary commercial considerations in relation to the conduct of its future business or that it would continue placing orders with Samson for any longer than it was satisfied that it was in its commercial interest to do so. The length of that period would in turn depend on a number of factors and imponderables all outside the Bank's knowledge, there being no evidence to show it was aware of the particular background to the parties' business relationship or future intentions, save that the previous two year relationship had apparently been a successful and expanding one.[33]In those circumstances it seems to me that there was no sufficient basis on which the judge could or should have predicated his award covering a period anything like as long as four years. As I read his judgment, he only did so because, once satisfied that any award would have to be assessed on a loss of chance basis, he treated the period to be covered by his award as dictated simply by the point at which, on taking into account all the imponderables he thought relevant, and a variety of facts before him which were outside the Bank's knowledge on the date of breach, the chance of profit reduced to a level which became merely speculative in the sense used by Stuart-Smith LJ in the Allied Maples case at 1614D. Had the judge focused upon the Bank's limited knowledge of the facts at the date of breach, he would have concluded that it could reasonably foresee a substantial loss of business in relation to orders likely to be placed by Economy Bag in the near future but with a cut-off point far shorter than the four year period at which he arrived by the route which he adopted.[34]In the course of the hearing before us, both parties indicated to the court their desire that if we were of the opinion that the judge fell into error in his general approach to the question of damages, we should ourselves perform the exercise of assessing the damages recoverable so as to avoid the need for remission to the judge. In my view, the judge having noted all the difficulties of assessment with which he was faced by adopting the approach which he in fact applied (see paragraph 15 above) essentially failed to see the wood for the trees. He could and should have approached the case on the broad basis that, while it could reasonably be contemplated that the established relationship of Samson and Economy Bag would have continued for a time, and thus that some award of damages for loss of future business fell to be made, that time should in all the circumstances be limited to a period of one year from the date of breach, all loss thereafter being regarded as too remote. On the other hand, when quantifying the chance that Samson would have supplied Economy Bag during that year with the goods which Economy Bag proceeded to buy direct, it seems to me that the judge was in error on the facts before him at trial to make the large discount for uncertainty which he did. Further, (assuming no breach by the Bank) there was no reason on the facts available to the judge to suppose that prices charged by Samson or the business conditions or commercial considerations applied by Mr Taylor would in the short term be so altered as to make Economy Bag inclined to cut out Samson as its supplier. As I have indicated in paragraph 20 above, I am satisfied that the judge misunderstood the evidence in respect of certain matters which he made the subject of discount when he assessed the loss of chance.[35]On the assumption that the evidence (as I read it) showed that, but for the Bank's error, Samson was virtually certain to have retained Economy Bag's business in dog chews for the year 1993/94, the loss of profit on the figures adopted by the judge would have been $38,831, to which should be added 5% commission, less overheads, giving a total of $47,278.15. I would round down that figure to $45,000.00 to reflect the small degree of uncertainty inherent in even the closest of trading relationships and would award that sum together with interest by way of general damages for loss of profit. INTEREST[36]The judge made his award of interest on the damages assessed having received an affidavit from the Bank relating, inter alia, to the state of Samson's accounts and heard evidence from Mr Davies as to the financing of Samson's business, followed by detailed submissions from counsel. The judge made an award at the rate of 6% over base rate, that being the rate payable by Samson upon its business current account at the Bank, out of which its day-to-day trading had been financed, in conjunction with a dollar account. The latter account received the monies derived from the trading with Economy Bag in dollars, the profits from which were transferred from time to time into the business account to support the business by payment of expenses and partners' drawings. Economy Bag was the principal customer and source of income for that business, which effectively ceased upon Economy Bag's defection. At that time, the business current account was in overdraft to the tune of £14,000 but was expected to reduce as trade continued. This expectation was reflected in internal correspondence of the Bank some twelve months after its breach in which the view was expressed that, but for the Bank's error and the consequent loss of profit, which the Bank put at some £4,000 per month, the business account would have been well in credit. However, in the interim, interest had accumulated, being debited at the 6% above base rate compounded on the usual banking basis. Although the Bank ceased showing further debits in the account following transfer of it and other Economy Bag accounts to the Bank's Edinburgh Office pending litigation, it made clear before the judge that it continued to treat Samson as liable for accumulating interest at 6% above base rate, which it reserved the right to debit. On that basis, the amount due at trial by way of the outstanding balance on the business account was, in round figures, £23,800.[37]In addition to the business trading account there was a business `term loan' account in connection with a mortgage for a warehouse purchased by Samson for the proposed use of the business. The rate on that account was 4% over base, the loan being repayable over seven years and secured on the warehouse.[38]In making her submissions as to the rate payable, Miss Heilbron recognised that interest is generally awarded on a conventional basis at a rate which ignores the position of the individual plaintiff, the usual award in the Commercial Court being 1% over base rate from time to time. However, she submitted that, in the instant case, the court should exercise its general discretion to make an award at a rate higher than the conventional rate so as to recognise the position of the plaintiff personally. In that respect she relied upon two particular matters. First, a passage in McGregor on Damages (16th ed) at paragraph 675, where, having referred to the awards of 2% over base rate made to Lloyds Names in Brown -v- KMR Services [1995] 2 Lloyd's Rep 513 and Deeny -v- Gooda Walker (No.3) [1996] LRLR the following statement appears:
"The reason given was that this "represented what individual Names are likely to have to pay when borrowing money"
. This trend may well continue. It is only fair to plaintiffs, if they have to borrow, that the interest rate awarded should reflect their borrowing rate, though even two per cent over base rate will never achieve a full indemnity for a borrowing plaintiff while the requirement that the interest be single (sic) and not compound stands." Second, Miss Heilbron relied upon the letter from the Bank indicating its view that, but for its conduct, the overdraft upon the business account, which represented Samson's actual borrowing rate for the purposes of financing its business, would have been eliminated within a year.[39]In his submissions for the Bank, Mr Keith, who was then dealing with an award of damages of some £80,000 spread over a period of four years, argued that the matter should be dealt with in the conventional way and resisted the suggestion that the business account rate was appropriate. However, he did so largely upon the basis that the debit balance of the business account as at trial (6% compound interest having been applied) represented little more than one quarter of the overall award. Mr Keith was content to put the matter in this way. Having referred to the decisions of the Commercial Court in Brown and Deeny to raise the conventional rate to 2% over base in relation to Lloyds Names as a class, he said:
"As a broad brush approach, they felt 2% over base was right. I would say that this is an appropriate case for 2 or 3% over base overall or Your Lordship could divide it up between the different awards of damages for the different years, taking into account the interest that has been paid on the business overdraft. But, otherwise, My Lord, I would say there is no justification for going right up to base plus 6%, even though that is what has been charged on their [business] overdraft by the bank."

The judge ignored that via media approach and said:

"The main contenders are Mr Keith's submission that [I] should follow Commercial Court practice and award 1% over base from time to time and Miss Heilbron's submission that I should award a higher rate than that because it is not just in this case. The plaintiffs have had to borrow and have had to pay more than that rate of interest, because they have been out of pocket because they've not had their damages. They haven't gone out and borrowed, they have been left, as it were, with balances, overdrawn balances, particularly on the business current account, on which the defendant has levied interest at its base rate plus 6%, in the case of the business current account. Therefore, that is the obvious rate to choose. In the peculiar circumstances of these plaintiffs ... I am bound to say that that is the submission that I prefer. We all know perfectly well, that interest can't within the constraints placed upon the courts at the moment ever be an exact mathematical calculation which will or should even be designed to compensate the plaintiffs exactly for losses."
[40]That last observation is, of course, correct. Further, it is desirable that, save in exceptional circumstances, interest on damages should be awarded on the basis of a conventional rate. That is largely because it is an important aspect of litigation that the amount of a claimant's claim should, so far as possible, be readily calculable in advance and according to well established rules in order to encourage the settlement of disputes, whether by agreement or, (following proceedings) by a payment into court which, in the absence of indication to the contrary, will be treated as inclusive of all interest until the last date on which it could be accepted without needing the permission of the court: see CPR Part 36.22. Additionally, it will generally be neither convenient nor appropriate for the court following trial and judgment to proceed to a further `mini-trial' consisting of an inquiry into the level and nature of the individual claimant's borrowings from the time of the wrong complained of, the interest incurred upon those borrowings, and the extent to which those borrowings are directly attributable to the defendant's wrong. Such a process may well be necessary where interest has been pleaded as part of a claim for special damage, but is generally unnecessary and undesirable when the claim is made in the ordinary course following judgment. In such circumstances the usual practice is to make a discretionary ruling following brief argument from counsel.[41]As applied in commercial cases, the contractual rate is flexible to the extent that it does not preclude affidavit evidence "as to the rate at which persons with the general attributes of the plaintiff could have borrowed the money" (see Shearson Lehman Hutton -v- Maclaine Watson & Co (No.2) [1990] 3 All ER 723, 733, per Webster J, and Tate & Lyle Food and Distribution -v- Greater London Council [1982] 1 WLR 149, 154, per Forbes J. In such cases, it may well be that a higher award than the conventional 1% over base rate made in the Commercial Court will be appropriate. Nonetheless, the rate remains based upon broad considerations appropriate to plaintiffs of the class concerned, rather than the particular borrowing arrangements of an individual plaintiff who, while within that class, may, by reason of his particular creditworthiness or his inability to "shop around" for alternative arrangements, have sustained losses which render an award made on that basis inadequate to compensate him for being kept out of his money.[42]Applying that approach, the judge's award of 6% over base rate could not be justified in the sense that there was no general evidence before him as to the borrowing rates available to small business men over the period so as to justify the exceptional `uplift' adopted. The rate applicable to the plaintiff's business account, without more, would not suffice for that purpose. Further, the terms of the judgment as to interest totally fail to make clear how the judge could have regarded the existence of an overdraft of no more than £14,000 on the business current account as justifying an award at base rate plus 6% on the full judgment sum of £78,879.[43]Since this court has re-assessed and reduced the damages to a level properly payable in respect of one year's loss of business, it is appropriate that it should exercise its own discretion in respect of the award of interest. Having studied the evidence before the judge, it seems to me that he was led into an exercise of discretion which depended upon an investigation of Samson's overall financial position and personal borrowing arrangements, rather than consideration of the rates of borrowing available to small businesses of Samson's type. Such investigation (even if appropriate) was, in any event, incomplete. The evidence explored only the operation of the accounts I have mentioned, and did not extend to what other accounts may have been held elsewhere, nor whether personal accounts in the names of the partners might have provided funds available to pay off the overdraft on the business account. There was some evidence of other borrowings by Samson from the Bank, notably the term loan account debit balance, which the judge rightly excluded from his consideration because it was financed by and for the benefit of the individual partners and not the business of Economy Bag. The rate charged upon that account was 4% above base. However, the judge was wrong thereby to assume (if he did so assume) that the business loan account was appropriate evidence of the rates of borrowing generally available to traders such as Samson to replace the monies lost to it while awaiting the award of damages. Nor is any such evidence available to us. However, bearing in mind the concession made before the judge that, in all the circumstances of the case, it was an appropriate case in which to award 2 or 3% over base overall, I would award interest upon damages at the rate of 3% over base rate.[44]I would therefore dismiss the appeal and allow the cross appeal in the manner and to the extent indicated in paragraphs 35 and 43 above. Mr Justice Ferris: I agree with the judgment of Potter LJ and with the manner in which he deals with each of the various issues which are raised in this appeal Lord Justice Nourse: I also agree

Order

Appeals dismissed and cross appeal allowed in the manner and to the extent indicated in paragraphs 35 and 43 of Potter LJ's judgment; application to adduce fresh evidence granted; orders made in the terms of draft minute of order; leave to appeal to the House of Lords refused. (Order does not form part of the approved judgment.)

Cited in 1 later judgment